Britcoin or Britcon? Bank of England grilled on Digital Pound privacy concerns

"Nobody in this country wants there to be programmable digital currency like the Chinese system, where the government can basically determine what you look at, what you're spending, and determine what you can spend it on," said a member of the Treasury Committee grilling the incoming deputy governor of Financial Stability for the Bank of England.

Sarah Breeden, a Bank of England veteran who will start the new role in November, was questioned on public concerns about the "privacy" of the Digital Pound – which has been inevitably dubbed "Britcoin" – while testifying to UK's Treasury about the problems she and the Monetary Policy Committee (MPC) need to solve as she moves into the new position.

"While I'm supportive of that technology [the digital pound], as was apparent in the responses that we got to the discussion paper, there's a lot of concern about privacy," she responded.

"How you manage the privacy challenges, the role of the state – I think we're at the start of the debate on that."

Treasury Committee member Danny Kruger (Conservative MP for Devizes) pressed her: "Can you give assurances that the technology will not allow that [a situation similar to the digital yuan] in due course? How can we ensure that there is a sufficient sort of fire break in the tech to ensure that we are not empowering the state beyond the point that any of us would wish to go?"

Breeden responded: "We haven't got to the point yet where those issues have been raised; we're at the technical design point. What I can say is that these privacy concerns about programmability... I recognize those as real concerns and what we need to do... is reassure the public on how privacy is going to be delivered.

"Terms and conditions will be set in legislation. We must not assume trust in practice. We need to demonstrate that whatever it is that Parliament has decided is the right boundary for privacy is the one that we will deliver."

Breeden added that the Bank and Treasury were hoping to summarize the response to the consultation before the end of the year, although no date has been decided.

While the Bank of England is government-owned, it acts independently and has a mandate to act in the public interest.

While Breeden was being interviewed by the committee, Kruger asked for the banker's personal view on the risk to financial stability posed by blockchain tech more generally, to which Breeden responded that the opportunity to work from a single distributed ledger in a given transaction had a lot to recommend it, including its ability to cut costs and risk.

She added that the Financial Policy Committee (FPC), where Breeden is currently executive director for Financial Stability Strategy and Risk, was in favor of pulling cryptocurrency within the border of the "financial services regulatory perimeter." She also noted that trust and regulatory control were just as pertinent when it came to private digital money as it was for the digital pound.

"What the financial services regulatory perimeter will enable us to do is to deliver the same risk, same regulatory outcomes – so custody and transparency and fairness of markets. There are conflicts of interest in being able, as we saw with FTX, to kind of hold somebody's money or hold somebody's coins, but then use it for your own aims."

Earlier this year, the BoE and Treasury published a consultation paper setting out their assessment of the case for a retail central bank digital currency (CBDC) – the so-called Digital Pound. The CBDC task force was first announced in April 2021.

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Speaking more broadly about Britcoin, Breeden mused: "As I look at the 'what is it for' question, I kind of have two perspectives. The first is foundational, philosophical... I think that a digital pound would be the anchor for all money in the digital world. So we have now banknotes as the anchor for money in the economy. The bank note is the thing that gives you confidence that your pound in Barclays and my pound in Lloyd's can be exchanged.

"What the digital pound would do would make sure that all pounds are exchangeable for other pounds in a digital world and so it would support trust in digital money – like taking a bank note out of an ATM supports trust in money today. That matters a lot to me as a central banker, but doesn't, I suspect, resonate with many others."

When asked if it would replace cash, Breeden responded: "We will ensure that cash is available as long as it is demanded. We will ensure that the cash infrastructure in the financial system is there as long as it is demanded – cash and digital money are choices."

Kruger asked: "Do you think that the introduction of a digital pound would influence the demand for cash in the economy?"

"My observation, based on the data I have, is that it's almost bimodal – there are two camps. There are some people for whom cash is incredibly important and there are some people for whom cash plays no role whatsoever." ®